Business Financing for Professionals

A business loan is a form of financing offered to companies that seek to purchase real estate, machinery and equipment or to finance projects that help increase revenues and profits. Many entrepreneurs need start-up capital while established businesses seek to expand their operations.

Types of Business Financing

Banks, credit unions, and finance companies offer different types of financing, including professional, micro, long-term, and franchise start-up loans.

Professional Loans

Lawyers, doctors, and dentists who want to start their own practice can apply for financing. The money can be used for the purchase of equipment, and borrowers can choose from variable and fixed interest rates. Veterinarians, dentists, optometrists, ophthalmologists, and general practitioners can apply provided that they have a documented source of income. They should present a recent copy of their bank statement and other documents.

Micro and Long-term Loans

Micro loans are offered to companies that seek to purchase supplies, machinery, and inventory. Companies apply for financing to secure working capital or to purchase furniture, fixtures, and equipment. In many cases, the funds are administered through non-for-profit entities, and some banks require that applicants attend self-employment training sessions. The repayment term is up to 72 months, and companies can apply for financing of up to $35,000. Long-term loans are another option for companies that seek to expand their operations. The money can be used to purchase real estate, equipment, and industrial plants. Borrowers can choose from quarterly and monthly payments, and banks usually offer financing with fixed maturities. The term of repayment is up to 10 years, but some financial institutions offer loans with a term of up to 20 years. Borrowers should present collateral, which can be in the form of real estate or assets. While established businesses are likely candidates, start-ups find it more difficult to meet the lending criteria.

Other Types of Business Loans

Companies can apply for different types of financing, including revolving check credit, business line of credit, secured working capital loans, debt financing, and others. Revolving check credits are offered to businesses and allow them to write special checks. It is usually banks that extend financing, and the amount offered determines the charges. Repayment takes place in installments. A secured working capital loan is another form of financing available to business owners. Banks require that companies offer some asset as collateral, which allows them to secure working capital. One option is to offer equipment and machinery as collateral. Borrowers benefit from affordable interest rates and flexible repayment terms. The amount offered depends on the asset pledged as collateral and can be up to 90 percent of its value. Likely candidates include companies, organizations, and trusts. Some financial institutions also offer financing to applicants with fair and damaged credit and poor cash flow. Some factors increase the chances of getting approved and allow banks to offer better terms and interest rates. These include steady sales volumes, ownership of construction equipment, as well as project contracts.

A business line of credit is another form of financing that is intended for companies with poor cash flows. Businesses that need funds for major purchases and investments should look for another option. The lending decision is usually based on factors such as current inventory and accounts receivable. The credit limit is up to $200,000. Many financial institutions charge late fees. Debt financing is another option for business owners, and the loan amount is based on the personal assets of business owners. There are pros and cons of using debt financing. The main advantages include tax deductions and pre-agreed payments. The interest charges and principal amount are considered business expenses meaning that they are tax deductible. The main downside is high interest rates. They vary depending on factors such as credit score, payment history, and macroeconomic conditions.

There are different alternatives to debt financing, including hybrid, mezzanine, and equity financing. The latter involves investing money in the company or selling shares. Some lenders feature mezzanine financing in the form of unsecured debt. The problem is that most loan providers offer very high interest rates (up to 30 percent). Hybrid financing is another option available to businesses, and it combines elements of debt and equity financing.

Franchise start-ups and business acquisition loans are two other options. The latter are offered to companies that seek to finance the purchase of an established business. The former is in the form of financing that helps businesses to purchase nationally recognized franchises. Finally, companies can apply for unsecured loans, but most lenders require an excellent credit profile.

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